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The unique challenges of a global public health crisis put significant stress on seniors housing operators and owners that may take years to fully recover. Learn more from our experts.

Seniors housing critical piece of housing investment future despite challenges

Amid the uncertainty of 2020, multifamily real estate portfolios as a whole outperformed expectations. However, seniors housing faced unique operational challenges during a pandemic particularly affecting older people. The government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, were instrumental in keeping liquidity in the housing market. Currently, the agencies continue their focus on mission-based lending to increase affordable housing, including in the seniors housing sector.

Morgin Morris, senior vice president, KeyBank Real Estate Capital (KBREC) moderated a discussion on the future of seniors housing featuring Angela Mago, president, Commercial Bank and Real Estate Capital and KeyCorp executive leadership team, and Debby Jenkins, executive vice president and head of Multifamily Business, Freddie Mac.

Looking back, real estate investment during a challenged 2020

While certain sectors – such as hospitality and retail – were impacted more significantly, real estate overall was resilient during the pandemic, and housing continues to perform particularly well. Federal stimulus including the Paycheck Protection Program, has been helpful to real estate owners and operators, providing much-needed liquidity to the marketplace.

Though the real estate sector may see more stress throughout the recovery, the panelists said housing portfolios were a bright spot in a difficult year. “During the 2008 recession, real estate was not the darling. This time we are,” said Mago.

Jenkins notes that a proactive approach by the federal agencies and lenders has helped the housing market prop the economy. Through the forbearance program, the GSEs worked to get borrowers and operators through the crunch time of the early pandemic. The eviction moratorium helped keep tenants in their homes. Now, 70% of the loans that received forbearance are in repayment or have been paid off.

Mago says KeyBank’s seniors housing and healthcare portfolio performance has been strong. Loans on the balance sheet had zero principal and interest deferrals. Through early covenant modifications and loan restructures, the bank didn’t have to do forbearance. For the off-balance sheet or third-party portfolio, delinquency rates have been low and forbearance has been modest.

However, seniors housing owners certainly faced pressure in 2020, including widespread COVID-19 outbreaks in independent, assisted living and skilled nursing facilities at the beginning of the pandemic. Occupancy has gone down as some families are now choosing to have seniors age in place rather than move to congregant settings. Staffing, which was an issue pre-pandemic, remains the biggest operational challenge. Net operating income (NOI) for seniors housing and healthcare continues to be under pressure, but the acceleration of the COVID-19 vaccine approval and distribution should create some stability going forward.

Mago says that the strength of a seniors housing portfolio lies in sponsor and operator selection, especially during times of crisis. Jenkins agrees, “In seniors housing, the key for evaluating deals is sponsor/operator, not location, location, location.”

In the last recession, seniors housing outperformed many other categories, but today the U.S. is not in a liquidity-driven crisis, but a public health-driven crisis, which places greater stress on the operating side of seniors housing. The better news from a lending perspective today: most lending institutions have strong financial health.

Banks in general are much better positioned and well capitalized today than the last recession. We have strengthened our processes and stress our portfolios so we can demonstrate that we have enough capital, said Mago. At Key, we feel very well positioned to take market share, across different parts of real estate as well as seniors.

Securing deals in seniors housing amid uncertainty

Jenkins explains that when the COVID-19 pandemic began, it created a highly uncertain market, causing lenders and sponsors to pull back. “When the pandemic hit, Freddie Mac had to quickly start performing its countercyclical role, which it does in times of crisis and market volatility.”

Freddie Mac had to explain to investors how it was making decisions and covering risk. One of its first moves was to institute debt service reserves. During times of instability, these reserves can help owners survive. As the pandemic continued, Freddie Mac continued conservative underwriting.

We need to be able to look an investor in the eye and say we’re underwriting sustainable cash flow levels, and we’re bolstering that with the debt service reserves, Jenkins said.

She said that the borrower, sponsor and operator relationship and track record become even more key. “If an investor doesn’t have confidence in an operator’s ability to manage through, the deal is dead in the water.”

Morris adds that with the historically low interest rates, it’s a good time for borrowers to look into secure financing if the building is stable. Underwriters and the agencies are going to be looking at operator strength, market demographics, and the age, condition and adaptability of the asset. She notes, “The market is firming up, and the usual premium for seniors housing that investors charge is diminishing and we’re seeing the Agencies get more aggressive on select deals. With the distribution of the vaccinations, occupancy levels are already starting to show signs of improvement. Many clients point to a dramatic uptick in interest from new residents during the first quarter of this year.”

The mission for affordable housing for seniors – and all

The Federal Housing Finance Agency (FHFA) set new multifamily loan purchase caps for the GSEs at $70 billion for each agency in 2021, covering the four quarters of the calendar year1. The 2021 caps require at least 50 percent of the agencies’ multifamily business to be mission-driven, affordable housing and at least 20 percent to be affordable to residents at 60 percent area median income (AMI) or below.

2020 lending caps of $80B each for Fannie and Freddie were established and achieved during the year, primarily driven by strong lending volume in the multifamily, manufactured housing, and affordable housing segments. FHFA set 2021 lending caps at $70B each and increased the requirement for “mission” business by 12% (to 50% of the total). A decline in the caps will put pressure on loan spreads, and increasing mission requirements are generally good for seniors borrowers.

About two-thirds of our seniors’ business has been mission driven, but we want to continue to push that value, said Jenkins. With the new cap guidance, we need to focus, and want our lenders to do the same thing. We’re going to be looking for even more affordable deals, including seniors.

Mago says that affordable housing has been a focus for KeyBank for several years but weaving together seniors housing and the affordable component has been a greater challenge. Yet it’s a huge need because of a large aging population with lower retirement income to spend on housing.

She says that of the KeyBank community development lending and investment portfolio, which invests in affordable housing, about one-third is 55+ housing. Integrating the care component is more difficult, and so is getting investors in the seniors housing space more comfortable with affordable housing investment. She points to an affordable assisted living deal in Mishawaka, Indiana, that KeyBank Real Estate Capital and the bank’s healthcare investment division Cain Brothers financed with a public bond issuance as an example of a creative solution2.

Caution as we look ahead

The participants agreed that cautious lending would continue to be the course as more turbulence could be ahead. They believe the first half of 2021 will be slow, but the second half of the year will be stronger with pent-up demand. Those trends are already developing. Morris notes, “Acquisition activity is picking up and national banks, including Key, have started to transact on single and portfolio acquisitions. Based on conversations with our clients, I expect this volume to continue to accelerate as onsite performance improves.”

We’re better able to handle the pandemic now, we’ve learned a lot. Vaccines are here faster than we all thought, and the caseloads are moving in the right direction, which is great news, said Mago. We will continue to be careful about what we lean into.

Mago says NOI will continue to be under pressure, and lenders will value operator and sponsorship expertise and the need for reserves to get through periods of less stability. The ongoing uncertainty will test operators’ resiliency as well as how well they can address staffing challenges. Smaller assets with higher acuity – such as memory care or skilled nursing facilities – may be particularly challenged in the coming months.

Though seniors housing deals have a premium on loan pricing because of operator risk, Jenkins notes that Freddie Mac can be competitive because of its mission and view into how its portfolio is performing.

The challenge for seniors housing leaders

The unique challenges of a global public health crisis put significant stress on seniors housing operators and owners in 2020 that may take years to fully recover. Lenders and investors in the seniors housing marketplace understand it to be a long-term play. A large, aging population of Baby Boomers will need housing options in the coming years. To address this critical need, lenders are looking for strong operators with on-the-ground experience and enough scale to operate effectively, to marry strong operations with good capital.

In addition to the market fundamentals, the panelists discussed the need for the seniors housing investment industry to meet the needs of the future, including by increasing equity and inclusiveness among its leadership so that people lending in the space better understand and reflect the communities they serve.

Key’s integrated approach to seniors housing and healthcare finance brings together deep experience, valuable market insights and actionable ideas in this complex arena. To learn more, connect with your KeyBank Healthcare Finance manager, or reach out to

This document is designed to provide general information only and is not comprehensive nor is it legal, accounting, or tax advice. Credit products are subject to credit approval, terms, conditions, and availability and subject to change. is a federally registered service mark of KeyCorp. ©2021 KeyCorp. All rights reserved. Banking products and services are offered by KeyBank N.A. Member FDIC and Equal Housing Lender.